Service firms grow at steady pace, boost hiring

WASHINGTON — U.S. service companies expanded at a healthy pace last month and stepped up hiring, more evidence that the economy is growing and adding jobs.

The Institute for Supply Management said Wednesday that its index of non-manufacturing activity dropped to 56 in March. That’s down from February’s 57.3, which was a 12-month high. Any reading above 50 indicates expansion.

Economists said the slight decline wasn’t troubling because the reading was still at a healthy level that points to growth. And a measure of employment rose to near a six-year high reached in January.

The trade group of purchasing managers surveys roughly 90 percent of U.S. companies in all sectors outside of manufacturing. That includes retail, construction, financial services, health care, and hotels.

Separately, payroll processor ADP said the economy added 209,000 private-sector jobs in March. The ADP survey does not include government jobs.

The two reports are encouraging signs ahead of the government’s report on March job growth, which will be released Friday. Many economists expect that will show the fourth straight month of strong hiring.

“The (ISM) survey still suggests that domestic demand is contributing more to the recovery,” said Paul Dales, an economist at Capital Economics, in a note to clients. “This survey is still consistent with some decent rates of economic growth.”

Wall Street, however, appeared more focused on the Federal Reserve’s signal Tuesday that it is less inclined to provide more stimulus to help the economy. The Dow Jones industrial average fell 153 points in morning trading, and broader indexes also declined.

There were some cautionary signs in the ISM report, too. A measure of new orders fell but still showed growth. A gauge of sales and other business activity also declined.

The economy has added an average of 245,000 jobs per month from December through February. Economists are predicting that employers added 210,000 jobs in March.

More jobs have helped service companies grow. As hiring picks up, Americans are more willing to spend. Consumer spending jumped in February by the most in seven months, the government said last week.

Department stores, electronics chains and other merchants are seeing more business. Retail sales increased in February by the most in four months. Department store sales rose in February by the most since November 2010.

Big job gains at service firms are necessary to reduce the unemployment rate. The service sector includes low-paying positions in retail and restaurants. But it also has higher-paying jobs in professions such as information technology, accounting and financial services.

The job gains have come as growth has picked up. The economy expanded at an annual rate of 3 percent in the final three months of last year.

Still, the hiring gains have not resulted in bigger paychecks for most people. Income grew just 0.2 percent last month, matching January’s weak increase. And when taking inflation into account, income after taxes fell for a second straight month.